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Boullain March 20 AFM exam

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Boullain March 20 AFM exam

  • This topic has 3 replies, 2 voices, and was last updated 4 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 11, 2020 at 4:54 am #594663
    alex2019
    Member
    • Topics: 3
    • Replies: 2
    • ☆

    Sir,
    I don’t understand why the unexpired basis is added (not deducted).
    I have calculated the Sept Futures as follows:
    Spot 1.1485 – Sept Future 1.1422= 0.0063
    Unexpired basis 0.0063*1/7= 0.0009
    Estimated Future Price September= 1.1422 – 0.0009= 1.1413

    Why in the answer provided the unexpired basis is added? Would it be considered an error in the exam?
    Thanks for your help.

    November 11, 2020 at 10:16 am #594695
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    The lock-in rate will always be between the current spot and the current futures price (because the two move closer together over the life of the future).

    Given that the current spot is higher than the current futures price, the lock-in rate must be between the two and so here we need to add the unexpired basis (and so subtract it would be en error).

    November 12, 2020 at 1:25 am #594761
    alex2019
    Member
    • Topics: 3
    • Replies: 2
    • ☆

    Thank you Sir. It makes sense now. Appreciate it!

    November 12, 2020 at 9:14 am #594777
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Boullain March 20 AFM exam’ is closed to new replies.

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